I - Ethics, Professional Responsibilities, Federal Tax Procedures

Question 1

Circular 230 SubPar A Section 103 provides that a certified public accountant who is not suspended or disbarred..

Answer 1

may practice by filing a written declaration that they’re qualified and is authorized to represent

Question 2

Who may practice before the IRS?

Answer 2

attorneys
cpa
enrolled agent
enrolled actuary
enrolled retirement plan agents (limited to employee plans)

Question 3

Practicing before the IRS includes

Answer 3

preparing documents
filing documents
corresponding w/irs 
written advice with regard to transactions that have potential for tax avoidance or evasion
representing client

Question 4

what section for contingent fees

Answer 4

section 10.27

Question 5

when can contingent fee be charged

Answer 5

IRS examination or challenge to original tax return or amended
claim for refund filed (only for interest and penalties)
when representing client in judicial proceedings

Question 6

Circular 230 Subpart C Section 10.50

Answer 6

monetary penalty on practitioners. max penalty 100% gross income, can be added to the 50% penalty of gross income from Section 6694

Question 7

Circular 230 Subpart C Section 10.51

Answer 7

acts of disreputable conduct - includes conviction of crimes, willfully evading taxes, being disbarred

Question 8

Which section is understatement of taxpayer liability

Answer 8

Section 6694

Question 9

Section 6694 (a) punishes understatement for:

Answer 9

unreasonable position = if no substantial authority = <40% chance of being challenged
penalty is greater of 1k or 50% income

Question 10

Section 6694(b) punishes understatement for:

Answer 10

willful or reckless understatement.

Penalty is greater of 5K or 75% income

Question 11

which section abuses TRPs for abusive tax shelters

Answer 11

Section 6700.

Punish if promote, organize or participate in, engage in gross overvaluation (2x)

Question 12

3 unreasonable positions

Answer 12

no substantial authority (40%) for position
no reasonable basis (20%) for disclosed position
no more likely than not (50%) for tax shelter

Question 13

What is the penalty for fraudulent understatement

Answer 13

75% of understatement

Question 14

a substantial understatement on an individual return =

Answer 14

greater of 10% of the tax or 5k

Question 15

a substantial understatement for a c corp

Answer 15

lesser of 10% of tax, 10k, or 10M

Question 16

Form used to disclose a tax position

Answer 16

form 8275 or 8275-R

Question 17

a plaintiff must prove the following elements in order to win a breach of contract suit:

Answer 17

1 - existence of an enforceable contract (oral contract usually ok)
2 - plaintiff client complied with contracted obligations
3 - defendant accountant breached the contract (may be intentional)
4 - damages were caused by the breach

Question 18

burden of proof needed for most civil cases

Answer 18

preponderance of evidence (more likely true tan not true > 50%)

Question 19

statute of limitations for breach of contract

Answer 19

oral = 2 years
written = 4 years from breach

Question 20

3 defenses to breach of contract claims

Answer 20

statue of limitations, justifiable breach, substantial performance

Question 21

4 elements of a cause of action for professional negligence

Answer 21

1 - accountant owed a duty of care to the plaintiff
2- defendant breached the standard of care
3 - breach proximately caused injury
4 - client suffered damages

Question 22

how does a breach proximately cause an injury?

Answer 22

2 parts: factual and legal

“but for” the accountant’s breach, loss would not have occured. and if injury was reasonably foree result of breach

Question 23

the main difference between negligent misrepresentation claim and negligence claim:

Answer 23

plaintiff relied on the information

Question 24

basic elements of fraud claim

Answer 24

1 - misrepresentation or omission of fact (includes false statement of expert opinion)
2 - materiality
3 - accountant knew or recklessly endangered the falsity (scienter)
4 - there was reasonable reliance
5 - damages

Question 25

other word for knew or recklessly disregarded the falsity

Answer 25

scienter = knowledge = actual fraud | reckless disregard or gross negligence = constructive fraud

Question 26

if fraud, can you have both types of damages?

Answer 26

yes both compensatory and punitive damages

Question 27

is the burden of proof higher for fraud cases?

Answer 27

need to prove with clear and convincing evidence (substantially more probable than more true than not)

Question 28

statute of limitations for fraud

Answer 28

4 years of when they were defrauded or when they discovered the fraud

Question 29

can incidental beneficiaries sue for breach of contract?

Answer 29

no

Question 30

describe the elements of recovery

Answer 30

duty, breach, damages, proximate cause

Question 31

the 3 primary approaches to accountant liability

Answer 31

the privity approach of ultramares vs touche, restatement limited class approach, reasonable foreseeability approach

Question 32

what is the privity approach of ultramares vs touche

Answer 32

accountant is liable only to those with whom they had privity of contract

Question 33

restatement "limited class" approach to accountant liability

Answer 33

accountant has third party liability to a limited class of known or intended users of financial statements whose specific ID don't need to be known by the CPA

Question 34

True or false: a cpa can be held liable for actual fraud only

Answer 34

false

Question 35

true or false: a cpa who commits fraud is liable to all plaintiffs whom the CPA could reasonably foresee would be injured by the fraud

Answer 35

true

Question 36

CPA recklessly disregarded the tax law when giving advice. true or false: this is an example of actual fraud

Answer 36

false

Question 37

do the federal or state courts typically recognize accountant-client testimonial privilege?

Answer 37

no. however, in 15 states some recognize privilege that belongs to the client, which can be waived. only applies in those state courts

Question 38

what section of the IRC extends modest testimonial privilege to clients of tax advisers?

Answer 38

section 7525

Question 39

which section of the IRC provides criminal penalties for unauthorzed disclosures of taxpayer info?

Answer 39

section 7216

Question 40

which section of IRC imposes civil fines for disclosure of taxpayer info?

Answer 40

section 6713

Question 41

what is the custom of profession standard

Answer 41

despite a cpa's adherence to the custom of the profession, negligence may still be present

Question 42

the third party (primary) beneficiary rule is relevant only in which cases: fraud vs constructive fraud vs neglignence

Answer 42

only negligence

Question 43

sources of contract law

Answer 43

common law and article 2 of UCC (uniform commercial code - sales)

Question 44

which requires more details and precision: common law or UCC article 2?

Answer 44

common law. ucc has more flexibility

Question 45

what does ucc article 2 apply to?

Answer 45

contracts that involve sale of goods. can also include providing both goods and services, if primarily for sale of goods. if primarily for installation, that would be common law

Question 46

what does contract law apply to?

Answer 46

service and real estate contracts

Question 47

what are growing crops governed by, UCC or common law?

Answer 47

UCC

Question 48

what is a void contract

Answer 48

lacks legal purpose or is in violation of the law - cannot be enforced by the courts

Question 49

requirements of a valid offer

Answer 49

present intent definite terms communication of offer

Question 50

open price term

Answer 50

a reasonable or market time price at the time of delivery will apply

Question 51

open payment term

Answer 51

payment is due at time and place buyer is to receive the goods

Question 52

open quantity

Answer 52

quantity is to be set by output or need. need good faith and past measurements

Question 53

open place of delivery

Answer 53

delivery is at seller's business or residence

Question 54

open time for contracted performance

Answer 54

reasonable time

Question 55

what are definite terms for common law vs for UCC?

Answer 55

common law requires ID of parties, subject mater, price, time for performance. UCC is more relaxed

Question 56

what is the common law rule for language of acceptance

Answer 56

mirror image rule: acceptance must be absolute, unequivocal, unconditional, or treated as a counteroffer, not an acceptance.

Question 57

what is the UCC rule for language of acceptance

Answer 57

definite expression of acceptance. if followed by additional terms, might form a contract.

Question 58

is conditional acceptance ever acceptance?

Answer 58

no, for both UCC and common law

Question 59

when is acceptance effective?

Answer 59

if sent by an authorized medium, contract is formed when offeree delivers acceptance to authorized medium (even if it is never received by offeror)

Question 60

the 3 types of irrevocable offers

Answer 60

options sales of goods firm offers offers irrevocable by estoppel

Question 61

is a firm offer by a merchant offeror in the sale of goods under the UCC irrevocable even though no consideration is received?

Answer 61

yes

Question 62

true or false: if you accept in writing the written offer "we offer to sell you our boat" this is an enforceable contract under UCC

Answer 62

true

Question 63

When is there no Section 6662 penalty imposed?

Answer 63

If there was reasonable cause for underpayment and taxpayer acted with good faith

Question 64

Reasonable Cause

Answer 64

exercise of ordinary care, judged objectively

Question 65

reasonable cause standards of belief

Answer 65

substantial authority >= 40% | reasonable basis >= 20% sustained

Question 66

does good faith include reliance on tax advisor?

Answer 66

yes. need: advisor was given all facts and circumstance advice was not based on unreasonable assumptions